Industria Lechera de PR v. Flores

989 F.3d 116

• Court: Court of Appeals for the First Circuit
• Decided: March 1, 2021
• Docket: 18-1347P
• Status: Published

Opinion

United States Court of Appeals For the First Circuit No. 18-1347

INDUSTRIA LECHERA DE PUERTO RICO, INC.,

Plaintiff-Appellant,

v.

RAMÓN GONZÁLEZ BEIRÓ in his official capacity as ACTING SECRETARY OF THE PUERTO RICO DEPARTMENT OF AGRICULTURE;* JORGE CAMPOS MERCED, in his official capacity as ADMINISTRATOR OF THE PUERTO RICO MILK INDUSTRY REGULATORY OFFICE,**

Defendants-Appellees, and

SUIZA DAIRY, CORP.; VAQUERÍA TRES MONJITAS, INC.,

Intervenor-Defendants, Intervenor-Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO [Hon. Daniel R. Domínguez, U.S. District Judge]

Before

Howard, Chief Judge Torruella*** and Thompson, Circuit Judges.

* Pursuant to Fed R. App. P. 43(c)(2), Acting Secretary of the Puerto Rico Department of Agriculture Ramón González Beiró has been substituted for former Secretary of the Puerto Rico Department of Agriculture Carlos Flores Ortega. ** Pursuant to Fed R. App. P. 43(c)(2), Administrator of the Puerto Rico Milk Industry Regulatory Office Jorge Campos Merced has been substituted for former Interim Administrator of the Puerto Rico Milk Industry Regulatory Office María del Carmen Martínez Campos. *** Judge Torruella heard oral argument in this matter and participated in the semble, but he did not participate in the Rafael M. Santiago-Rosa, with whom José R. Negrón-Fernández, and Marichal, Hernández, Santiago & Juarbe, LLC were on brief, for appellant. Edward W. Hill, with whom The Law Offices of Edward W. Hill was on brief, for appellees. Rafael Escalera Rodríguez, with whom Viviana M. Berríos- González, and Reichard & Escalera, LLC were on brief, for intervenor-appellee, Suiza Dairy Corp. Enrique Nassar Rizek, with whom Enrique Nassar Rizek, Esq. ENR & Associates appeared, for intervenor-appellee Vaquería Tres Monjitas, Inc.

March 1, 2021

issuance of the panel's decision. The remaining two panelists therefore issued the opinion pursuant to 28 U.S.C. § 46(d). HOWARD, Chief Judge. This case is the latest episode in

the long-running litigation over milk price regulation in Puerto

Rico. Although this Court has spent much ink recounting the

history of this dispute -- see Vaquería Tres Monjitas, Inc. v.

Comas-Pagán, 772 F.3d 956 (1st Cir. 2014); Vaquería Tres Monjitas,

Inc. v. Comas-Pagán, 748 F.3d 21 (1st Cir. 2014); P.R. Dairy

Farmers Ass'n v. Comas-Pagán, 748 F.3d 13 (1st Cir. 2014); Vaquería

Tres Monjitas, Inc. v. Irizarry, 587 F.3d 464 (1st Cir. 2009),

reh'g and reh'g en banc denied, 600 F.3d 1 (1st Cir. 2010) -- we

briefly lay out the relevant facts that have led us here and assume

familiarity with our past decisions. We ultimately hold that

neither we, nor the district court, have federal subject matter

jurisdiction over the instant dispute and therefore remand with

instructions to send the case back to the Puerto Rico Court of

First Instance.

I. Background

The relevant parties are familiar to us. Appellant

Industria Lechera de Puerto Rico, Inc. ("Indulac") is owned and

operated by Fondo de Fomento de la Industria Lechera, a statutorily

created entity whose purpose is to promote Puerto Rico's milk

industry. See Irizarry, 587 F.3d at 468. Indulac is the only

entity in Puerto Rico authorized to process ultra-high temperature

milk ("UHT milk"), which does not need to be refrigerated before

it is opened. Id. at 468.

- 3 - Appellees include Ramón González Beiró, in his official

capacity as the acting Secretary of the Puerto Rico Department of

Agriculture, and Jorge Campos Merced, the administrator of the

Milk Industry Regulation Administration for the Commonwealth of

Puerto Rico (Spanish acronym "ORIL"). ORIL, a subdivision of

Puerto Rico's Department of Agriculture, regulates Puerto Rico's

milk industry and has the power to set milk and milk-product

prices. Id. at 469.

The appellees also include Puerto Rico dairy producers,

Suiza Dairy, Inc. ("Suiza") and Vaquería Tres Monjitas ("VTM").

Id. at 467-68. Suiza and VTM purchase raw milk from local dairy

farmers and process the milk into drinkable fresh milk. Id. at

468. Their fresh milk product is a direct competitor to Indulac's

UHT milk. Id.

Suiza and VTM brought a lawsuit in 2004 in which they

asserted that Puerto Rico's milk pricing regulations violated

their rights under the Commerce Clause and the Fifth and Fourteenth

Amendments of the United States Constitution, as well as under

Puerto Rico law. Id. at 471-72. In 2007, the district court

issued a preliminary injunction and ordered ORIL to adopt a

mechanism to compensate retroactively Suiza and VTM at a "fair

rate of return" from the year 2003 until ORIL could implement a

new pricing regime. Id. at 472. To comply with the preliminary

injunction, ORIL implemented a "regulatory accrual" mechanism that

- 4 - placed a small surcharge on every quart of milk sold to consumers.

The surcharge amount then went into an account to benefit Suiza

and VTM. Id. at 477.

In 2013, "after almost a decade of litigation -- complete

with various evidentiary hearings, three appeals, and the onset of

contempt proceedings -- the principal parties settled" and ORIL

agreed to promulgate an industry-shaping price regulation. Comas-

Pagán, 772 F.3d at 957. The parties to the Agreement were the

Secretary of Agriculture of Puerto Rico on behalf of the Government

of Puerto Rico, ORIL, VTM, and Suiza. The Agreement required ORIL

to promulgate a new regulatory scheme and enact a Milk Price Order

effective November 7, 2013. The Agreement further provided that,

once the November 2013 Price Order came into effect, "the

regulatory accrual charge . . . will be deferred until January 1,

2017."

On November 7, 2013, the district court entered an order

approving the Agreement and incorporating it as a consent decree.

The district court retained jurisdiction of the case "for

compliance purposes of all the covenants of the Settlement

Agreement of October 29, 2013, or any other related matter and/or

remedy related to the full compliance of the Settlement Agreement

of October 29, 2013." Indulac, which had been an intervenor in

that case -- but not a signatory to the Agreement -- moved to alter

or amend the judgment. The district court denied Indulac's motion

- 5 - on the basis that, as an intervenor, Indulac did not have standing

to request that the judgment adopting and entering the Agreement

as a consent decree be amended or modified. See Vaquería Tres

Monjitas, Inc. v. Comas, 992 F. Supp. 2d 39, 41 n.1 (D.P.R. 2013).

On December 29, 2016, ORIL issued a Price Order that

reestablished the regulatory accrual surcharge on fresh milk

products, effective January 1, 2017. And on May 31, 2017, ORIL

issued another Price Order extending the regulatory accrual

surcharge over all fluid milk, including UHT milk, effective June

1, 2017. The latter Price Order, which affects Indulac's UHT milk

product, is the focus of this appeal.

II. Procedural History

On June 9, 2017, Indulac filed a challenge to ORIL's May

31, 2017 Price Order in the Puerto Rico Court of First Instance.

Indulac argued that ORIL had failed to comply with three different

procedural administrative requirements before issuing the May 2017

Price Order. Specifically, Indulac alleged that ORIL failed to:

(1) give Indulac proper notice of the proposed Price Order; (2)

abide by a statutory requirement to hold public hearings and

require the attendance of specific government officials, consider

certain factors prescribed by statute, including a recommendation

by the Secretary of Consumer Affairs, and conduct a market study

before issuing the Price Order; and (3) publish the rule in three

consecutive editions of a newspaper of general circulation as

- 6 - required by statute. Because ORIL allegedly failed to comply with

the applicable procedural rules, Indulac argued that the Price

Order was void under Puerto Rico law and that its issuance violated

Indulac's due process rights under the Constitution of the

Commonwealth of Puerto Rico.

ORIL filed a notice of removal on June 27, 2017 and

asserted federal jurisdiction based on 28 U.S.C. § 1331 and

§ 1441(a) and (c). ORIL contended that federal question

jurisdiction existed because Indulac's lawsuit would "frustrate"

the 2013 consent decree and cited "the All Writs Act (28 U.S.C.

§ 1651) and the Anti-Injunction Act (28 U.S.C. § 2283) in order to

protect or effectuate [the Court's] judgment" (internal quotations

omitted). ORIL also cited the district court's retention of

jurisdiction to enforce the Agreement as supporting removal.

In addition, ORIL sought a preliminary and permanent

injunction under the All Writs Act to enjoin the Puerto Rico Court

proceedings in the event Indulac succeeded on a motion to remand

the case back to the Puerto Rico Court. But Indulac did not oppose

removal. Instead, Indulac acquiesced to the removal, stating that

it would not seek remand if the district court found it had federal

subject matter jurisdiction over the dispute.

The district court found that it had jurisdiction and

denied ORIL's motion for injunctive relief as moot. Having found

- 7 - jurisdiction, the district court granted ORIL's motion to dismiss

for failure to state a claim. Indulac appeals that dismissal.

III. Jurisdiction

Federal courts "have an independent obligation to

determine whether subject-matter jurisdiction exists, even when no

party challenges it." Hertz Corp. v. Friend, 559 U.S. 77, 94

(2010); see also Lawless v. Steward Health Care Sys., LLC, 894

F.3d 9, 16 (1st Cir. 2018) ("[F]ederal subject-matter jurisdiction

can never be presumed, nor can it be conferred by acquiescence or

consent.") Therefore, we must "raise and decide jurisdictional

questions that the parties either overlook or elect not to press."

Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011).

Mindful of these principles, our review of the district court's

"retention of subject-matter jurisdiction over a removed case [is]

de novo." Lawless, 894 F.3d at 16-17.

Federal courts have jurisdiction "over two general types

of cases: cases that 'aris[e] under' federal law" and "cases in

which the amount in controversy exceeds $75,000 and there is

diversity of citizenship among the parties." Home Depot U.S.A.,

Inc. v. Jackson, 139 S. Ct. 1743, 1746 (2019) (citing 28 U.S.C. §§

1331, 1332(a)). Defendants may remove a "state-court action over

which the federal courts would have original jurisdiction . . . to

federal court" under the general removal statute, 28 U.S.C. § 1441.

Id. All the parties before us are citizens of Puerto Rico, which

- 8 - precludes the existence of diversity jurisdiction, and ORIL did

not claim diversity jurisdiction supported removal. Therefore, if

federal jurisdiction exists, it must be supported by an issue that

arises under federal law; this type of jurisdiction is often

referred to as federal question jurisdiction. See, e.g., Ortiz-

Bonilla v. Federación de Ajedrez de P.R., Inc., 734 F.3d 28, 34

(1st Cir. 2013) ("For cases, like this one, where there is no

diversity of citizenship between parties, removal jurisdiction

turns on whether the case falls within 'federal question'

jurisdiction.").

Two types of actions may come within federal question

jurisdiction: those involving a direct federal question (for

example, an action premised on a federal statute or the United

States Constitution), and those involving an "embedded federal

question." Id. There is no direct federal question in Indulac's

petition, as no "federal law creates the cause of action asserted."

Gunn v. Minton, 568 U.S. 251, 257 (2013). To the contrary, only

Puerto Rico law creates the cause of action. As to jurisdiction

under the second type of action, often referred to as federal

ingredient jurisdiction, such jurisdiction lies only in a "special

and small category" of cases in which a "state-law claim

necessarily raise[s] a stated federal issue, actually disputed and

substantial, which a federal forum may entertain without

disturbing any congressionally approved balance of federal and

- 9 - state judicial responsibilities." Id. at 258 (first quoting Empire

HealthChoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 699 (2006);

then quoting Grable & Sons Metal Prods. v. Darue Eng'g & Mfg., 545

U.S. 308, 314 (2005)). Because Indulac's petition sounds only in

Puerto law and not in federal law, and because its Puerto Rico

claims cannot be said to raise any stated, disputed, and

substantial federal issues, this action does not fall within

federal ingredient jurisdiction either.

Nonetheless, in its order finding jurisdiction, the

district court reasoned that the "instant controversy is

intrinsically related to the [Agreement]" and that it had federal

question jurisdiction over this case because it "retained

jurisdiction to enforce the covenants of the [Agreement]."

Consequently, we read the district court's order finding

jurisdiction and the amended opinion on which this appeal is based

to reflect the district court's view that its power to decide this

dispute stems from its jurisdiction to enforce the 2013 consent

decree. This was error.

Metheny v. Becker, 352 F.3d 458 (1st Cir. 2003), is our

controlling precedent. There, the plaintiff filed a lawsuit in

state court arguing, in part, that a local zoning board "had abused

its discretion and thus violated Commonwealth law in failing to

follow certain procedures in connection with its decision making."

Id. at 459. The defendant removed the case to federal district

- 10 - court on the basis of federal question jurisdiction because the

case "ar[ose] directly from, and constitute[d] a collateral

challenge to," an earlier settlement incorporated into a federal

judgment. Id. And, like here, the defendant cited the All Writs

Act in support of its removal argument. Id.

We found that removal was improper for reasons that are

relevant here. Id. at 460-61. First, "[t]hat the case might be

regarded as an improper attack on a prior federal judgment does

not provide grounds for removal." Id. at 460 (citing Rivet v.

Regions Bank of La., 522 U.S. 470, 474-77 (1998)). Further, the

complaint in Metheny "sound[ed] only in Commonwealth law." Id.

And finally, "[t]he existence of the consent decree in the prior

judgment [did] not authorize removal under the All Writs Act."

Id. (citing Syngenta Crop Prot., Inc. v. Henson, 537 U.S. 28, 31-

34 (2002)).

The principles underlying our Metheny decision apply

here with equal force. Most obviously -- and similar to the

complaint in Metheny -- Indulac's petition is based on a failure

to comply with Puerto Rico law, not federal law. Id. Second, the

existence of the prior federal consent decree is a potential

defense that cannot independently grant federal jurisdiction. See

Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987) ("[I]t is

now settled law that a case may not be removed to federal court on

the basis of a federal defense"); see also Rivet, 522 U.S. at 477

- 11 - ("[C]laim preclusion by reason of a prior federal judgment is a

defensive plea that provides no basis for [federal question]

removal."). And the fact that Indulac's petition for review may

disrupt ORIL's ability to comply with the consent decree is not

grounds for removal jurisdiction. See City of Warren v. City of

Detroit, 495 F.3d 282, 288-89 (6th Cir. 2007) (defendant could not

remove on basis that plaintiff's claim could impact ability of one

party to comply with a federal consent judgment).

As to appellees' arguments that the All Writs Act and

the Anti-Injunction Act give the federal courts jurisdiction to

hear this case, they are wrong. The Supreme Court foreclosed these

arguments almost two decades ago in Syngenta Crop Protection, Inc.

v. Henson, 537 U.S. 28 (2002) (overruling Xiong v. Minnesota, 195

F.3d 424 (8th Cir. 1999), cited by appellees). The Court clarified

that the removal requirements in 28 U.S.C. § 1441 are "to be

strictly construed" and that the All Writs Act does not give

parties free reign to "avoid complying with the statutory

requirements for removal." 537 U.S. at 32-33. The "All Writs Act

does not confer jurisdiction on the federal courts" and so "cannot

confer the original jurisdiction required to support removal

pursuant to § 1441." Id. at 33. We recognized the same in Metheny

and do so again here. See 352 F.3d at 460.

To the extent appellees or the district court relied on

the doctrine of ancillary jurisdiction -- sometimes referred to as

- 12 - "enforcement jurisdiction," see U.S.I. Props. Corp. v. M.D.

Constr. Co., 230 F.3d 489, 496 (1st Cir. 2000) -- to support

removal, such reliance was also in error. Ancillary jurisdiction

"recognizes federal courts' jurisdiction over some matters

(otherwise beyond their competence) that are incidental to other

matters properly before them." Kokkonen v. Guardian Life Ins. Co.

of Am., 511 U.S. 375, 378 (1994). The Supreme Court has approved

the exercise of ancillary jurisdiction in a "broad range of

supplementary proceedings involving third parties to assist in the

protection and enforcement of federal judgments -- including

attachment, mandamus, garnishment, and the prejudgment avoidance

of fraudulent conveyances." Peacock v. Thomas, 516 U.S. 349, 356-

57 (1996) (collecting cases). However, the Supreme Court has

squarely rejected the notion that ancillary jurisdiction can

support removal under § 1441 absent an independent basis for

original jurisdiction. Syngenta, 537 U.S. at 34 ("Removal is

governed by statute, and invocation of ancillary jurisdiction

. . . does not dispense with the need for compliance with statutory

requirements."). As such, ancillary jurisdiction cannot support

removal here.

We note, as we noted in Metheny and as the Supreme Court

observed in Syngenta, that a federal court, under the All Writs

Act and the relitigation exception of the Anti-Injunction Act,

"may enjoin state-court proceedings 'where necessary . . . to

- 13 - protect or effectuate its judgment.'" Metheny, 352 F.3d at 462

(quoting Rivet, 522 U.S. at 478 n.3); see also Syngenta, 537 U.S.

at 34 n.* ("One in petitioners' position may apply to the court

that approved a settlement for an injunction requiring dismissal

of a rival action."). ORIL sought such injunctive relief below to

enjoin the Puerto Rico proceeding, which the district court denied

as moot based on its finding of removal jurisdiction. That avenue

still remains a possibility for relief, and its potential

availability reveals one reason why our jurisdictional ruling does

not exalt form over substance: there are material differences

between what a court considers in the context of a removed case

and what it considers before entering an injunction.

In the event that ORIL later renews its request for

injunctive relief to the district court under the All Writs Act

and Anti-Injunction Act, some issues that might confront the

district court include the scope of a potential injunction, how it

might be crafted to respect the sovereign interests of Puerto Rico,

and ultimately whether an injunction would be a proper exercise of

the court's equitable power. See, e.g., Fernández-Vargas v. Pfizer

Pharm., Inc., No. 04-2236 (JAF), 2006 WL 3254463, at *5-8 (D.P.R.

Nov. 8, 2006) (considering, inter alia, the "wasteful expense of

relitigating"), aff'd, 522 F.3d 55 (1st Cir. 2008); see also

Mitchum v. Foster, 407 U.S. 225, 243 (1972) (noting the "principles

of equity, comity, and federalism that must restrain a federal

- 14 - court when asked to enjoin a state court proceeding"). We

emphasize, however, that we take no view as to the merits of any

such effort to enjoin the Puerto Rico proceedings.

IV. Conclusion

Finding no federal jurisdiction, we vacate and remand to

the district court with instructions to return this case to the

Puerto Rico Court of First Instance. No costs are awarded.

- 15 -